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19 February 2012

China's achievement is literally the greatest in world economic history

Economic development’s purpose is to improve the conditions of human beings. Robert Lucas put it eloquently, in frequently quoted words, examining the consequences of different rates of economic growth: ‘I do not see how one can look at these figures without seeing them as possibilities. Is there some action a government of India could take that would lead the Indian economy to grow… If so, what, exactly?… The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.’

In this framework it should be stated, soberly and with due consideration, that China’s economy since 1978 is the greatest economic achievement in world history. This article shows this in the prosaic language of statistics. But of course that is not the real issue. What really counts is the consequences of this for human beings – escape from poverty, improvement in life expectancy, improved health, expanded potential for education, improvement in the position of women, and many other dimensions. Economic statistics, such as GDP per capita, simply underpin this improvement in human conditions.

The scale of China’s economic achievement

A problem in assessing the true scale of China’s economic achievement is that partial statistics are frequently used to state it. Some of these, for example that China has become the world’s second largest economy, or that it has raised 620 million people out of internationally defined poverty, are extremely striking (Quah, 2010). But nevertheless, because they are partial, they do not capture the full scope of what has occurred. Only when systematic data is used does the full magnitude of China’s achievement become clear.

Again, even when systematic comparisons are attempted, the scale of China’s economic achievement is frequently underestimated because inappropriate measures are used. For example when comparing rates of economic growth, in calculating contributions to economic welfare, it is misleading to take individual countries as the unit of comparison, rather than the proportion of world population affected – rapid economic growth in a small country evidently contributes less to human well being than rapid growth in a large country.

In order to give an initial systematic comparison, therefore, Table 1 shows the percentage of world population affected at the point when sustained rapid growth commenced in major economies. For example the first country to experience sustained rapid economic growth was the UK in the industrial revolution - which was in a country with 2.0 per cent of the world’s population. The sustained rapid US economic growth after the Civil War was in a country with 3.3 per cent of the world’s population.

There are, of course, arguments about some additional individual countries that might be included in the comparison – for example Italy from 1950 (1.9 per cent of the world’s population) or Spain from 1960 (1.0 per cent of the world’s population). But it is evident from the data that introducing such extra countries makes no difference to the essential situation.

No other economy starting sustained rapid economic growth even approaches the 22.3 per cent of the world’s population in China in 1978 at the beginning of its new economic policies. For comparison Japan’s rapid post-World War II growth was in a country with 3.3 per cent of the world’s population, and the growth of the four Asian ‘Tigers’ (Hong Kong, Singapore, South Korea, and Taiwan) was in economies with only 1.4 per cent of the world’s population.

Only India’s sustained economic growth after the late 1980s, in a country with 16 per cent of the world’s population, even begins to approach China’s achievement in scale, but the percentage of the world population affected is still lower than China’s, as is India’s growth rate.

Table 1

Introducing the necessary correction of population size also makes clear that the method sometimes utilised of ranking by country size is misleading. To see why it need only be noted that, if current exchange rates are used, on the World Bank tables for 2010, the latest year for which comprehensive statistics are available, 87 of the countries for which data was available have a higher GDP per capita than China and 83 had a lower. This appears to place China about half way up the list of world rankings. As when the People’s Republic of China was created in 1949, or economic reform was launched in 1978, China was one of the world’s most economically underdeveloped countries this might appear a quite good performance, but it wholly understates China’s achievement.

The reason is that ranking by country takes no account of relative population. For example among the countries above China are the Seychelles, Palau, St Kitts and Nevis, Dominica, and Antigua and Barbuda – all with a population of less than 100,000. If the real international position of China is to be assessed then, again, size of population must be taken into account. Figure 1 below, therefore, shows the percentages of world population living in countries with GDP per capita above and below China and shows the real proportions of China’s economic achievement.

In 1978 countries containing only 0.5 per cent of the world’s population had a GDP per capita below China’s, while 73.5 per cent had a higher one – China itself accounted for 25.9 per cent of the world’s population for which data was available. By 2010, using the same measure, the percentage of the world’s population living in countries with a higher GDP per capita than China was 31.3 per cent - given the speed of increase, it is clear that when 2011’s data is published it will show that less than 30 per cent of the world’s population lives in countries with a higher GDP per capita than China.

Figure 1

Therefore in only slightly over thirty years China, containing more than twenty per cent of the world’s population, has moved from being one of the world’s least economically developed countries, to a position where less than one third of the world’s population lives in countries with a higher GDP per capita, and where China’s position is rising rapidly.

Checking these current price statistics against international parity purchasing powers (PPPs), which takes into account different price levels in different countries, confirms the same result. Measured by PPPs in 1980, the first year for which World Bank data is available, only 1.3 per cent of the world’s population lived in countries with lower GDP per capita than China and 73.0 per cent in countries with a higher one. By 2010 only 31.5 per cent of the world’s population lived in countries with a higher GDP per capita than China.

Another way of measuring is to compare China to the rest of the world’s population. To do this, the best measure is not the average as, for well known statistical reasons, averages covering wide ranges are excessively affected by small numbers of extreme values. This is confirmed very clearly by world data. Only 25 per cent of the world’s population has a GDP per capita above the global average and 75 per cent have one below it. A better, and the standard, measure of incomes is to make a comparison to the median – the exact mid-point.

In 1978 China’s GDP per capita was only 42 per cent of the median for the rest of the world’s population. By 2010 China’s GDP per capita was 289 per cent of the median.

That since 1978 China, with more than one fifth of the world’s population, has moved from being one of the poorest countries in the world to a situation where less than one third of the world’s population has a higher GDP per capita is without historical precedent. Never before in human history has such a large proportion of the world’s population advanced so rapidly.

A number of conclusions clearly follow from the above data – in addition to the obvious one of simply recognising this as a fact of economic history. But for now it need simply be noted, soberly and with due measure, that China’s is quite literally the greatest economic achievement in world history.

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An earlier and shorter version of this article appeared, in English and Chinese, in Global Times.

Comments

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One comment talked about college enrollment during Cultural Revolution. Have you been to such a "college" during Cultural Revolution? Simply put: it is a disgrace to the word "education". Get some facts if you were not there.

China's economic development since 1978 is indeed an extraordinary accomplishment. It is somewhat misleading, however, to begin the analysis with 1978 or to not address its historical roots or the question of levels of inequality within China. The fact is that China experienced very high growth rates over much of the period from 1949 to 1978 as well, but the benefits of these were distributed in a much more egalitarian fashion, establishing a baseline in terms of nutrition, healthcare and access to education that then enabled China to much more effectively utilize its "human capital" to achieve capitalist take-off after 1978. The tragedy of the post-1978 Chinese miracle is the simultaneous transformation of China from one of the most economically egalitarian societies in the world to one of the least. In any event, the widespread attribution of the post-1978 take-off to the demolition of the Mao-era egalitarianism is ahistorical. One important example of all this that that during the Cultural Revolution, which is widely portrayed as enormously disruptive to education, enrollment at universities actually expanded enormously. The post-1978 expansion would have been inconceivable without the expansion of access to higher ed for working class and peasant youth that was in fact central to the Cultural Revolution. Giving Mao credit for anything is of course anathema to the hegemonic narrative, but there you go.

This is a great post, and how could one not agree with it. Until Deng Xao Ping (excuse the spelling) launched his economic reforms in 1979, China was a dirt poor, third would country with living standards in the countryside no higher than many African countries. I grew up with a Chinese kid in Birmingham in the UK who took a trip to his ancestral village in China right around '79-'80. When he returned, the descriptions he gave! Chickens walking around the village, villagers wearing old torn clothes and living in mud huts, and the outhouses seemed like a horror. What has China grown since then - by a factor of at least 10x? There is absolutely nothing in history to compare to this, and many laypeople do not understand or realize the stunning achievements the Chinese have made. Very shortly, they will be back in their historically accustomed place as the largest economy in the world.